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New York is the up-and-comer, but can it overtake the reigning heavyweight?
I was born and raised in New York City. Until January of this year, it was the only city I ever lived in. There are a ton of great things about New York (great food, amazing museums, everything you could ever need being only a block or two away). And quite a few not so great things (roaches, the subway, blizzards). One thing that I really never thought of New York as was a place for, though, was technology.
Whenever I thought about tech startups, the first place that came to mind, of course, was Silicon Valley. It has been the place to be for so long that the term has become synonymous with companies like Google, Facebook and Yahoo. But there are other ecosystems out there that are up and coming, including New York City.
A report conducted by research firm Startup Genome, called the Startup Ecosystem Report 2012 ranked the top 20 startup ecosystems, and New York came in fifth place, behind Silicon Valley, Tel Aviv, Los Angeles and Seattle.
(Note: Vator is holding its second-ever Vator Splash NY in Manhattan on Dec. 5. We'll here from top NY angels/investors on just what's happening in the NY startup scene. Register here. Thanks to our Champagne sponsors RRE Ventures and KPMG for helping to make this event happen.)
How are the regions ranked?
To rank each region, the report breaks it down into eight important categories:
- Startup output index, which represents the total activity of entrepreneurship in the region
- Funding index, or how active, and comprehensive, the risk capital is in each ecosystem
- Company performance index, or the total performance, as well as the potential, for startups in each region
- Mindset index, or a measurement of how well the population of founders in each ecosystem thinks like a great entrepreneur
- Trendsetter index, which measures how quickly an ecosystem adopts new technologies and management
- Support index, or the quality of the startup ecosystem’s support network
- Talent index, a measurement of the talent of the founders in an ecosystem
- Differentiation index, or how different a startup ecosystem is to Silicon Valley.
While Silicon Valley came in first in every category, New York was more of a mixed bag. While it came in high for activity and funding, it came in dead last when it came to talent. In every other category, it was either seventh, eight or ninth.
The average age of an entrepreneur in New York is slightly younger than their Silicon Valley counterparts (32.55 to 34.12) and more educated. For every one college dropout, New York has four entrepreneurs with a Masters and a PhD. Silicon Valley's ratio is 1 to 2.5.
On the other handm New York entrepreneurs do not work harder, with an average of 9.69 hours a day, compared to 9.95 hours for Silicon Valley.
The two ecosystems are equal when it comes to percentage of serial entrepreneurs, with 56%.
One area where New York clearly wins: the percentage of female entrepreneurs. 18% of New York entrepreneurs are women, compared to only 10% in the Valley. In fact, New York is the global capital for women tech entrepreneurs, with the highest percentage of any city.
Investment trends for New York City startups
The total amount put into New York City startups has increased over the years, according to data from DowJones VentureSource.
In 2002, 191 startups received $1.5 billion in investments. In 2005, more money was invested as 172 startups received a total of $2.4 billion in investments. In 2011, there were 394 startups that received a total of $3.2 billion.
So far 2012 hasn't been so great though the amount invested is well above the level in 2002. In the first three quarters, 272 startups received $1.5 billion, meaning it will almost certainly finish down from 2011, for the first time since 2009.
As for IT companies, $684 million was invested into 87 information technology companies in 2002. By 2005, that amount was $750 million into 62 IT companies.
And, 73 startups have received $288 million in the first three quarters of 2012, meaning that it is above the number of the number of investments this point last year, but down in terms of dollars. The first three quarter of 2011 saw 64 IT companies receive $294.
The final totals for IT companies in 2011 were 91 startups funded with $417 billion.
The number of total investments and dollars in New York had been increasing for the last few years, but we also know that total VC funding has been down this year, which has led to fewer VC investments, which may be the result of economic uncertainty relating to the fiscal cliff or possibly because of a Series A squeeze caused by a larger number of angels and seed investors.
Whatever the reason, VC investments are down in New York, but it has simply been following the trends of the rest of the VC market.
Some famous New York startups
New York has had some impressive IT startups including social network Foursquare, which launched in 2009.
New York is also the home of notable websites, including blogging website Tumblr; e-commerce crafts site Etsy; group social network site Meetup; URL shortening and bookmarking service Bit.ly; design website Fab; and travel booking service Kayak.
Findings in the report
When it comes to New York startups, they tend to monetize earlier, and have a higher ratio of paying customers. This helps mitigate risk, "it may also limit the startup’s ability to be highly disruptive," Startup Genome says.
The number of people employed per stage is equal, until the efficiency stage, where New York startups have double the number employees as Silicon Valley.
Despite ranking high for funding index, New York has a funding gap. It has 70% less funding than Silicon Valley in the second stage before product market fit. Startup Genome attributes this to a lack of super angels.
New York startups also have a smaller target market size and are 58% less likely to be over $10 Billion as compared to Silicon Valley startups.
So who wins?
Unfortunately for New York, while it might be getting to a place where startups consider it to be a credible place to start their tech businesses, Silicon Valley still has the clear edge over all contenders.
"New York has established itself as a serious alternative to SV for startups in the consumer space and those focusing on e-commerce, advertising, media and fashion. However, it has long way to go to truly catch up with SV, with about the half number of startups as SV," the report concludes.
(Image source: https://www.hybridtweaks.com)
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